Can Reddit Traders Make IronNet the Next AMC or GME?

IronNet Cybersecurity (IRNT), which was listed recently through a SPAC reverse merger, has been on a fire. It rose over 37 percent on Sept. 15 and closed near the day’s highs. The stock is again higher sharply on Sept. 16 and is also getting popular on Reddit group WallStreetBets. How high can IRNT stock go and is there an epic short squeeze in the cards?

Lately, there has been a flurry of short squeezes in SPACs around the merger time. Many of the SPAC stockholders have been opting for redemption, which lowers the outstanding share count and leads to a short squeeze. Locust Walk Acquisition Corp. (LWAC) was a perfect example where 97 percent of stockholders opted for redemption.

WallStreetBets created a buzz with short squeezes in names like GameStop (GME) and AMC Entertainment (AMC). It was a new phenomenon in the U.S. stock markets, which were acting as a cohort. Retail traders took on Wall Street hedge funds and triggered epic short squeezes.

Reddit traders are bullish in IRNT stock and a post calls it “one of the greatest opportunities retail has ever seen.” The post describes the short squeeze in IronNet stock as “absolutely insane.” The post talks about the high borrowing fee in IRNT stock and the availability of few shares. Also, the float is lower in IronNet, which makes it more susceptible to a short squeeze.

The post said that IronNet is a “legitimate” candidate for a gamma squeeze and compared the opportunity to the first run-up in GME stock.

It's worth noting that while IronNet reported decent earnings and maintained the guidance, the price action after the earnings release is at odds with the earnings. The steep rise that the stock has seen over this week reminds me of the rally in some of the other meme stocks most of which now trade way below their highs.

In typical Reddit fashion, another Reddit post has put target prices ranging up to $530 on IronNet. That’s the bull case scenario assuming the stock “goes to the moon” in typical WallStreetBets lingo. However, the user put $135 as a more realistic target assuming “everything goes right.”

The short interest in IronNet stock looks pretty high. According to data from Fintel, the total FINRA short volumes in the stock was a massive 12.8 million shares on Sept. 15. The FINRA short volumes were almost half of the total FINRA volumes on the day.

With retail traders getting their act together and pushing for yet another short squeeze, IRNT stock could move higher from these levels. However, while the business outlook for IronNet stock looks positive considering the expected revenue growth, the valuations are starting to look frothy.

Previously, I noted that IronNet stock looks like a good buy. However, the stock’s price action is now following the trajectory of other meme stocks. With the rise on Sept. 16, IRNT stock’s valuations look stretched. While it might still go up, like GME and AMC, the margin of safety isn't there at these prices now.